Photo-Me’s (PHTM’s) FY18 results confirmed a successful business model divided by mutually exclusive sectors. A choppy market in Asia squeezed segment revenues but restructuring plans potentially improve profitability beyond FY19. FX headwinds and reduced tax benefited margins, although politically driven tax breaks can’t be assumed to be permanent. The aggressive laundry unit roll-out helped to drive the top line with segment revenue mix shifting in Portugal and Ireland. We expect consensus to be downgraded temporarily but expansion in underpenetrated markets supports low single-digit growth over coming years.
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Photo-Me International |
Laundry opportunities and Japanese restructuring
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Consumer goods |
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19 July 2018 |
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Photo-Me’s (PHTM’s) FY18 results confirmed a successful business model divided by mutually exclusive sectors. A choppy market in Asia squeezed segment revenues but restructuring plans potentially improve profitability beyond FY19. FX headwinds and reduced tax benefited margins, although politically driven tax breaks can’t be assumed to be permanent. The aggressive laundry unit roll-out helped to drive the top line with segment revenue mix shifting in Portugal and Ireland. We expect consensus to be downgraded temporarily but expansion in underpenetrated markets supports low single-digit growth over coming years.
FY18 results: Earnings per share overshoot
Results surprised the market with PBT (underlying) growth of 4.4% but EPS growth of 14.2% on lower tax. Group revenue was up 7.1% to £229.8m, driven primarily by the rapid expansion of Laundry. The Japanese market proved challenging with the ID card programme failing to gain the anticipated momentum, which led to a decline of 35.7% in Asia segment operating profit (c 22.0% share of group vending units). Strategic acquisitions, organic growth and favourable exchange rates resulted in EBITDA growth of 2.8%; however, EBITDA margin decreased 130bp to 30.9%
Laundry: Undemanding 2020 laundry unit target
Year-on-year revenue from laundry operations rose 69.1%, contributing 16% of total revenue (FY17: 10%) – a key driver of revenue with higher margins. Synergies from acquiring La Wash Group (May 2018) should contribute, with B2B and launderette expertise raising barriers to entry in the Spanish market. On a quest to expand B2B exposure, PHTM will seek acquisition opportunities in continental Europe supported by its cash-generative model. Compound annual laundry unit growth over the past four years has been c 42%, against which the target of 6,000 units by FY20 (FY18: 4,449) looks undemanding.
Valuation: Upsides despite high payout ratio
Consensus PBT is set to remain flat from FY18 to FY20, although this factors in restructuring costs in Japan. Consensus FY19e DPS is 8.2p; however, a high FY19 dividend payout ratio of 0.9 raises sustainability concerns. While the FY19 P/E valuation looks low relative to c 15.0x for the 2018 FTSE All-Share Consumer Goods index, continued delivery versus consensus could see the discount begin to close.
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Consensus estimates
Source: PHTM, Bloomberg |
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Research: Healthcare
The next year is shaping up to be transformative for Oryzon with two data readouts from Phase IIa trials with ORY-2001 in Alzheimer’s disease (AD) and multiple sclerosis (MS). In addition, an innovative design basket trial with ORY-2001 in several neuropsychiatric disorders may also deliver first results next year. Oryzon is resuming the development of ORY-1001 in acute myeloid leukaemia (AML) and small-cell lung cancer (SCLC). While Roche’s departure was a setback in 2017, the stars started to align again after the Biogen Abeta antibody data provided a much-needed boost for AD research industry and indirectly for Oryzon’s ORY-2001. Furthermore, a fundamental study published in Cell described the potential of LSD1 inhibition in immunooncology setting adding a new dimension to ORY-1001’s potential. We value Oryzon at €328m or €9.6/share (vs €9.4/share).